The most popular item or product offered by the agency for Rural Development is the USDA Home Loan and the reasons for this are not far-fetched. Other important but less popular products offered by the agency include repair and refurbishment credit, grants, and community-level facility financing.

Why choose USDA Home loans?

There is a guidebook provided by the agency to first-time homebuyers, highlighting the kind of monetary sources which are usually minimal and the required personal and home-based qualifications for getting a USDA Home Loan. The guide states in clear terms the requirements that must be met to be eligible for a USDA loan. It is therefore important for intending home buyers that plan to go for USDA loans to go through this book carefully and understand its content before proceeding to apply.

Over the years, the USDA Home Loan has become synonymous with Multiple-occupant or Single family guaranteed loan. Here, it is usually advised for a loan applicant in the low to medium income bracket to scale up his or her per capita income limit by 115%. Some of the great features of USDA home loans that have made it endearing to many home buyers include its long maturity of up to thirty years and the fact that there is no down payment as part of its compulsory requirements. Other credit programs that offer 100% upfront besides USDA loans include the almost-no-strings-attached Single Family Direct Home, among other farm laborers’ and rental programs.

While USDA home loans undoubtedly come with exciting packages and features that make most home buyers go for them, it is important to note that there are other loan packages that you might want to review within the repayment period.

In recent times, studies have revealed that some mortgage premiums will be 2 percent of closing costs. A simple illustration of this figure means that a home buyer intends to purchase a house of $200,000 and subsequently obtains this same sum of money from the lender, he or she is required to remit 2 percent of the borrowed amount which is $4,000, before he starts to pay the monthly premium. This amount is considerably low especially when one considers that there are no down payments required.

A 2 percent rate is also required for refinancing, which is subject to changes. The balance at the end of the year attracts a surcharge of 0.40 percent and this subsequently goes down as time goes. The lesser the outstanding balance, the lesser the impact on the closing rate.

The fees mentioned above tend to change based on government policies and economic realities. An example is the passage of the bill by the United States Congress on New Year’s Day 2013 when a bill to arrest the fiscal cliff was passed, though it seemed almost too little too late. However, regardless of the economic conditions, the USDA always try to review its rate to ensure that low-income earners benefit from the scheme to make their dreams of owning a home come true.

The flexibility of the USDA Home Loan is remarkable as it is not only easy to understand, but it also allows one to streamline insurance and closing rates into the rest of the mortgage. A good example is for an intending home buyer that does not have the required $4,000 insurance amount stated in the illustration above. In this situation, the buyer only has to appendage the amount to the rest of the opening balance. This makes the total amount came to $204,000 without having to pay a dime on the first day.

It is also important to note that the USDA Home Loan can only be assessed for areas classified as rural by the agency for Rural Development and the United States Government. Such areas could be quasi-urban in some cases, depending on the population density and income.

The USDA Home Loan is one of the easiest loans designed for home buyers in the United States. It is however surprising that not too many residents of the US opt for this rural development loan program. The guidelines and tips given above will help intending home buyers use this loan program to make their dreams come true.

Are you a first-time home buyer? If so, are you looking to purchase your first house? The reasons for buying a new home varies from one person to another. What is important is that you know and understand the different financing options that are available to you.

Mortgage: A long-term loan

The most common way to finance your real estate purchase is via a long-term loan referred to as a mortgage. According to Investopedia, a mortgage is a “debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.”

The reality is that real estate is costly to buy and not many people have the funds saved up to make this purchase possible. Therefore, banks and other financial institutions offer qualified buyers long-term loans to enable them to pay for the home purchase.

Furthermore, the lender has a claim on the house while the loan is still active. In other words, should you not meet the monthly repayment commitments, the bank has the right to foreclose on the house. You will then lose the property as well as the money that you have already paid to reduce the outstanding loan amount.

Ways to finance your purchase

There are different ways of financing a home purchase. As noted above, a traditional mortgage from a bank is the most common way of buying a home. Furthermore, as a first-time home buyer, you qualify for additional benefits such as reduced interest rates and reduced deposit amounts, etc. In the hope of attracting the first-time home buyer, different financial institutions will offer additional extras such as well as home buyer clubs and first-time homebuyer education courses.

To help you with some basic information, here are several ways to fund your new home:

FHA-insured mortgage

The best way of describing an FHA-insured loan is to quote Wikipedia. Therefore, an FHA insured loan is a “US Federal Housing Administration mortgage insurance backed mortgage loan which is provided by an FHA-approved lender.” Furthermore, the aim of an FHA-insured loan is to assist American citizens who, under normal circumstance, would not be able to afford to buy their home.

The Federal Housing Administration, commonly known as the FHA, does not give loans out to consumers. The job of FHA is to insure the loan against the future default of the borrower, hence, the mortgage insurance premium. This, in turn, reduces the risk that lenders take when extending loans to borrowers.

Family Loans

It is becoming increasingly common for parents to lend their children the money to purchase a home. This arrangement usually ends up as a win-win situation for both parties as parents can realize a higher return on their money by charging a slightly higher interest rate than they would get under normal circumstances. Furthermore, children would be able to borrow money at a lower rate than they would get from a bank. It is worthwhile noting that, while this might sound like an idea arrangement (and for many it is), there is a slightly higher risk of parents losing their investment due to non-payment of the loan from their children.

Securities-backed mortgage

In a nutshell, a securities-backed mortgage lender takes a certain percentage of a borrower’s stock investment portfolio as collateral for the loan for three to ten years. While the borrower holds these shares as collateral, they are considered inactive, and neither the borrower or the lender may trade in these stocks. The borrower also pays the interest on the loan amount for the duration of the loan. When the loan period has expired, the borrower has the option of selling the shares to pay for the loan capital, or he can take the shares back and pay the lender the total outstanding amount for the loan.

Cash purchase

Even though it is highly unlikely that the first-time home buyer has managed to save the property’s full purchase price, it is a viable way of buying a home. Furthermore, in a perfect world, this is the best way to acquire a home. However, in real life, you would need to weigh up the advantages of renting a home while you save to buy a house versus the cost of renting a place and saving. I’m not sure how practical it is to rent a house while saving the total cost price of a new home. In essence, it might be better to take out a mortgage and use your monthly rent to pay off your property.

This content is by no means a comprehensive guide to what you need to know about home finance. Its aim, however, is to whet your appetite and give you an introductory guide into financing a home.

Are you in the process of purchasing your first home? If so, do you understand the ins and outs of the mortgage application process? There is no doubt that buying your first home is an exciting, yet nerve-wracking time. There is so much to consider; therefore, it is easy to wonder whether you are making the right decision or not. The good news is that there is plenty of help available for first-time home buyers. All you need to do is ask!

What is a Mortgage?

In a nutshell, a mortgage is a long-term loan that has been designed to allow the borrower to pay for his new home. Fox Business explains further: “when you set out to purchase a home, no one expects you to have, say, $500,000 in cash. So that’s where a mortgage comes in: You borrow the extra money that you need to buy your chosen home, agreeing to pay it back in the coming years.”

Because the mortgage loan amount is usually very high, the financial institution needs to be sure that you will repay the loan. Furthermore, you will notice that the lender will never lend you more than the value of the property, and he will take the house as collateral for the loan until the loan is paid off. Then you own the home “free and clear”!

Requirements to Apply For a Mortgage

Furthermore, the lender or financial institution needs to be sure that you will repay the loan, so they require certain documents to be attached to the mortgage application. This information will be used to calculate and assess your risk portfolio.

Depending on how high your risk portfolio is when the lender considers your application, he will either approve your application or turn down your application as the risk that you will default on the loan repayments is too high. Should your application be successful, the lender will then consider what interest rate to offer you; thus, a high-interest rate equates to a higher risk and vice versa.

To help you put the relevant documentation together, here is a list of what you need to attach to your mortgage application:

Credit

The mortgage lender will pull your credit and determine your FICO scores. However, you are entitled to request a copy of your credit score and your credit history yourself. In a nutshell, your credit score determines your creditworthiness. Your credit score needs to meet certain requirements to qualify for a particular mortgage product, depending on whether you are getting an FHA loan, a conventional loan, etc.

Income

The bank needs a copy of your latest paycheck stubs. You will be required to provide the last 30 days payslip. You will also need to present your previous two years of personal tax returns, along with all W2s and 1099s associated with your return. If you are self-employed, you will need to provide your last two years business and personal tax returns. Lenders will also ask for a copy of your current financial or profit and loss statement.

Total Debts

Not only does the bank want to know how much you earn every month, but it also wants to know what your monthly expenses are, and how much money you have available to cover the monthly loan repayments. It goes without saying that if your total costs do not allow you to repay your mortgage, your loan application will be unsuccessful.

Assets

The type of mortgage you want will determine the amount of down payment required to qualify for such. Most financial institutions expect at least a down payment of 10-20% of the sales price. The only exception to this rule is if you apply for an FHA-insured loan or another particular loan program.

To avoid paying Private Mortgage Insurance (PMI), it is a good idea to put down a 20% deposit. Otherwise, you will have to take out an expensive insurance to protect the lender in case of a foreclosure.

Determine Your Budget

You need to determine what your maximum budget is. In other words, how much house can you afford to buy? For example, it is pointless applying for a house that is double the price you can afford. The bank will just turn down your loan application if you cannot prove that you can afford to repay the mortgage you need to take out to buy the property.

Getting pre-qualified by a mortgage lender will take care of the uncertainty on how much you can afford. It is, therefore, highly recommended that you get pre-qualified, if not pre-approved by a lender, before you start shopping for a house.

Homeownership continues to be a goal for most people, but there are often roadblocks preventing potential buyers from obtaining homes that fit both their needs and budgets. In many cases, customers simply can’t find a home they like and can qualify for. At other times, available homes are in the right areas and are priced right, but need extensive work to make them fit the buyers’ needs. That’s where FHA 203(k) Loans can play important roles.

What are the Loans Designed to Accomplish?

As alluded to earlier, FHA designed the program to allow buyers to purchase homes needing updating or other repairs to make them habitable. That means homes needing new plumbing, electrical wiring, or HVAC systems are prime candidates for the loans. If you’re looking for a home that’s in generally good condition and your ideal neighborhood, but needs an additional bedroom or bath area to meet your needs, a rehab loan may be a good option. Even homes needing structural repairs can be financed using a 203k rehab mortgage, so ask your Realtor if the seller would accept an offer requiring that type of mortgage.

The Section 203(k) insurance enables the homeowner or home buyer to finance both the purchase of the house and the cost of rehabilitation through a single loan. It protects the lender by allowing them to have the loan insured in the event of future default by the borrower.

Changing Life Circumstances Don’t Mean You Have to Move

Even individuals already owning a property can take advantage of the FHA 203(k) Loans. Refinancing using one of the 203(k) options is possible when changing conditions necessitate. For example, if your family is expanding or an aging parent needs to move in, an FHA loan can be used to refinance an existing mortgage and provide the funds required to make any necessary changes to accommodate the new circumstances. The 203(k) program also provides financing for individuals facing mobility challenges. If a disability of any type has changed your life, consider discussing renovation needs with an FHA loan expert to explore your remodeling options.

Ancillary Structures Can Also Be Financed

When a new garage, porch, or deck would make your life simpler, FHA 203(k) mortgages can take care of those needs. Often, adding a new ancillary structure is more practical than moving, especially for families with children who would be upset with a move away from friends and schools. Updating is about more than just installing new appliances or siding. A new garage, for example, will protect a family vehicle, provide additional storage, and even offer space for a much-needed workshop area. Your FHA mortgage specialist will review your needs and suggest the best mortgage options that fit those needs.

Who Can Take Advantage of the Program?

Typically, FHA home loans are designed to provide a relatively simple path for potential buyers to acquire the financing they need. As a purchaser, you will find lenders more than willing to work on your income and credit scores to ensure the best loan possible is obtained. That doesn’t mean everyone will qualify for FHA 203(k) Loans, but the requirements are less demanding than for many other loan types. Your first step is to contact a local loan officer who is familiar with the requirements for a 203k rehab mortgage.

With low-interest rates and minimal down payments required, FHA 203(k) financing may well be your best choice for financing a home being purchased or refinancing an existing property. Because this type of financing may require as little as 3.5 percent down, it’s likely you’ll be able to qualify. Additionally, the program can be used to finance single family homes as well as multiple family properties containing up to four units. If you’ve got questions about a specific property qualifying for the 203(k) mortgages, contact a lender for clarifications.

Because the 203(k) loans are so adaptable, it pays potential borrowers to explore their use carefully. If you’re looking for a great way to finance a property or refinance an existing one, take the time to visit a loan professional before making any buying decisions. You’ll find out what specific loan restrictions apply to buying or rehabbing a home and, more importantly, you’ll be able to determine whether or not qualifying for the loan will pose any problems.

While there is lots of information online about various FHA loans, it’s always better to visit a lender to get details and discuss the evolving mortgage market in your area. If you’ve got questions, contact an experienced FHA loan expert today for help.

Purchasing a house invariably is an interesting and nerve-racking at the same time. You might be thrilled with the idea of owning a home, particularly if you’re a first time home buyer. The thought of being a homeowner, all the things you will do to the house after you move in, the improvements you will make, kitchen upgrades, etc., these are all exciting, to say the least. However, the thought of financing and all the different types of home loans available out there in the market can be overwhelming and confusing. This is something that most first time home buyers need to understand and prepare for.

The two most common loan options you’ll see in the market are ARM or adjustable rate mortgages, and fixed rate mortgages or FRM. Each of them has its benefits and disadvantages. Which one suits your needs the best this particular time is something that must be tackled to determine which one is the best for you.

Fixed Rate Mortgage vs. Adjustable Rate Mortgage

Fixed rate mortgages are the most common and widely used type of mortgage. The interest rate on a fixed-rate mortgage does not change and remains constant for the whole term of the mortgage. A fixed rate mortgage has a significant advantage overall. First of all, a budget conscious person will find this type of loan most suitable for their needs. Since the interest rate is fixed throughout the life of the loan, a homeowner will have peace of mind knowing that the monthly mortgage payments will not change. It will be easier to come up with a budget that you can consistently keep, month in and month out. Needless to say, it is advisable for the conservative buyer to lean more towards a fixed rate mortgage when looking for a home loan.

Inversely, an adjustable rate mortgage works the other way around. A borrower can get a lower rate initially as compared to a fixed rate mortgage. You can buy a more expensive home that you might otherwise qualify for when getting a fixed rate. More home for your buck! But the interest rate is not set and will eventually change. With the change in interest rate comes along the change in monthly mortgage payments. With such type of loan, it’s tough to budget for future changes in monthly mortgage payments. Since the interest rate is directly tied to the bond market, the rate fluctuates all the time.

True, there is a cap that’s designed to keep the interest rate from changing extensively. Even the slightest fluctuation could be far too much for some homeowners to bear. Certainly, there’s also the chance that the rates will plunge. In such case, since your rate is adjustable, your mortgage payments will drop together with the interest rate.

When deciding whether a fixed rate mortgage or an adjustable rate mortgage is the best option for you, it is imperative that you consider several factors. Do you need a bigger and more expensive home or can you live with a smaller and decent house? Where do you see yourself years from now? Will you be making more money? Will you be moving up in the corporate ladder? How long do you see you and your family staying in the house you’re buying? Is it going to be for the long term or just temporary?

Determine if it is crucial to have the ability to arrange your finances per month without pondering if your home loan will rise or fall, but get a low-interest rate initially. Or would you rather pay a higher interest rate in the beginning but have a peace of mind knowing your mortgage payments will remain the same until such time that the loan has been paid off?

If you believe that you want the best of both worlds, keep in mind that you have other options too. If you think that the interest rate of a fixed rate mortgage is a bit too high right now, but you want the security of not having to worry about fluctuating interest rates, you may opt to buy the rate down in the form of discount points. Doing so will increase the total closing costs; therefore, you will need to bring more money to the closing table. However, it could be worth the initial cost of buying the rate down, especially in today’s market where the rate has been historically at its lowest level in years. More than likely, the interest rate will only go up from here.

If you decide to get an adjustable rate mortgage over a fixed rate mortgage, make sure you know exactly how high you can go with a fluctuating interest rate and still be comfortable with the monthly payments. Factor in the “wiggle room” in your monthly budget, just in case. This could be the difference between being able to afford to keep your house and losing it to foreclosure if the rate goes skyrocket in the future.